EU-China trade war brews as EU embraces Japan to fight off common competitor

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Beijing has toughened its critical tone towards the European Union’s protectionist measures against China, warning of increased friction in trade relations. As a trade war brews, the EU is uniting with Japan in fending off Chinese clean tech competition.

Just as the EU is due to announce whether it will impose tariffs on Chinese electric vehicles (EVs), China’s Commerce Minister Wang Wentao has hosted a roundtable with representatives from the China Chamber of Commerce to the EU (CCCEU) and Chinese enterprises on 1 June during his visit to Spain.

Hearing concerns from the business community regarding the EU’s anti-subsidy investigation into Chinese EVs, the deployment of tools such as the Foreign Subsidies Regulation (FSR) into cleantech products, as well as the International Procurement Instrument (IPI) into medical devices procurement, Wang described them as “three arrows fired at China”.

“Our position is clear: We promote dialogue and consultation as viable ways to address economic and trade frictions,” he remarked during the roundtable.

Participating business representatives urged China to take measures, should bilateral trade tensions escalate beyond control. Minister Wang reassured that, “We will take all measures to safeguard the legitimate rights and interests of Chinese enterprises.”

Beijing has launched an anti-dumping probe into European brandy, targeting French cognacs, with reports that relevant domestic industries are preparing evidence to apply to competent authorities in launching an anti-dumping investigation into pork meat and luxury car imports from the EU.

‘False narrative of overcapacity’

During the roundtable, Minister Wang dismissed the notion of overcapacity in China’s new energy vehicle sector as a “false narrative”.

He highlighted “substantial investments” in research and development by domestic enterprises, which have “successfully transformed once costly new energy products into globally beneficial public goods.”

According to statistics cited by the CCCEU, the overwhelming majority of EVs manufactured in China are destined for the domestic market, while 12.6% are destined for export, out of which around 5% (470,000 vehicles) reach the EU market.

Eurostat data for 2023 shows that when it comes to the most imported products from China, motor cars and motor vehicles registered the highest increase (€3.5 billion; 36.7% more than in 2022), although there was less deficit in the overall trade in goods.

Costly tariffs

Tit-for-tat probes threaten to lead to a full-blown trade war between China and the EU. The bullish sentiment was reinforced by Commission President Ursula von der Leyen during Chinese President Xi Jinping’s recent European tour.

But the President of the EU Chamber of Commerce in China, Jens Eskelund takes a different view. Eskelund warned that while “a train accident has not happened yet, it will happen if we continue in the same direction of travel as we are today.”

“We need our leaders to sit down and explore the ways that we can avoid this becoming a full-blown trade war. I think it is getting a little bit urgent,” he told Reuters in a recent interview.

Should the EU decide to impose a speculated 20 per cent tariff on Chinese-made EVs, the impact on bilateral trade would be almost $4 billion. The simulation was done by the Kiel Institute, predicting 125,000 fewer Chinese cars reaching European markets.

The analysis anticipates increased EV prices for consumers, as production within the EU is more expensive compared to China, due to higher energy and material prices, and significantly higher labour costs. However, retaliatory measures are not taken into account.

Cooperation with Japan paying off

While a trade war between China and the United States has been ongoing since 2018, the Peterson Institute for International Economics (PIIE), a Washington, D.C.-based think tank, argues that Trump-era tariffs and recent Biden tariffs prompted China to diversify into other markets, making these measures less effective.

While a new trade war is slowly brewing, the EU has moved a step forward together with Japan, hoping to fend off the Chinese competition.

Energy Commissioner Kadri Simson accompanied by a business delegation, visited Tokyo on 3 June, with several cooperation agreements signed between European hydrogen players and their Japanese counterparts.

It follows years of verbal commitments and previous agreements between the two powers, with Japanese Economy Minister Ken Saitoni and Commissioner Simson pointing to a common competitor.

[By Xhoi Zajmi I Edited by Brian Maguire | Euractiv’s Advocacy Lab ]

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